Barclays Shows Retail Intent with ING Direct Deal

Barclays' new chief executive set the course firmly towards retail banking with his first deal since replacing Bob Diamond.

LONDON -- Barclays' new chief executive set
the course firmly towards retail banking on Tuesday with his
first deal since replacing Bob Diamond - the takeover of ING's
British savings and loan business and its 1.5 million customers.

Antony Jenkins, previously head of Barclays' retail banking
operations, took the top job at the end of August after the
Libor interest rate rigging scandal forced Diamond, an
investment banker, to resign.

ING said in August it wanted to quit Britain, part
of plans to divest assets to increase capital and repay Dutch
state aid. It will effectively pay Barclays to take its
ING Direct UK business, including 750 employees, 10.9 billion
pounds ($17.5 billion) of deposits and 5.6 billion of mortgages.

Jenkins had already signalled his intention of focusing more
on retail banking and less on riskier investment banking.

Barclays will buy the loans at a 3 percent discount to their
face value, leaving ING with a 320 million euro ($415
million)loss on the transaction after tax.

"To the extent that this deal signals CEO Antony Jenkins'
revised strategic intentions and lower dependence on the
investment bank, we view it as positive," said Vivek Raja,
analyst at Oriel Securities.

In the last week Barclays has announced a shake up at its
investment bank to cut costs and prepare for new regulations,
and promoted two of the top consumer banking bosses.

Barclays said the acquisition was a good fit with its
existing UK retail banking business, where it has about 15
million customers.

ING Direct was launched in Britain in 2003 and was one of
the most aggressive new banks, using its distinctive orange lion
brand and shaking up the UK savings market with high interest
rates thanks to a low cost, mostly online operating model.

The deal will release around 330 million euros of capital
for ING, which is in the process of divesting its insurance
operations and other assets in an effort to repay Dutch state
aid received in 2008 and increase its capital level.

It sold its Canadian online bank in August, and is trying to
sell its Asian investment management and insurance operations, a
deal which could raise around $7 billion in total. It later
plans to separately list its European and U.S. insurance and
investment management businesses.

REVAMP

Jenkins' first task is reforming culture at a bank that
regulators said was taking too many risks. The 51-year-old also
needs to revive profitability and try to revive his company's
share price.

Barclays said the ING Direct deal meets Jenkins' target to
deliver return on equity (RoE) above its 11.5 percent cost of
equity, and would not have a material impact on its capital.

Most banks are struggling to deliver RoE above their cost of
equity as tougher regulations have squeezed profits and forced
them to hold more capital, limiting their ability to "leverage"
their equity.

Barclays delivered an adjusted RoE of just under 7 percent
in 2010 and 2011, and Jenkins has promised to take "quick and
decisive" action to get that up. He is assessing the bank in 100
parts and in February will unveil what areas he wants to keep
and invest in, attempt to turnaround, or get rid of.

UK retail banking, which delivered an RoE of 15 percent last
year, is seen as core.

Returns across global banks sagged to an average of 7.6
percent last year, well below the average cost of equity of
10-12 percent, as new regulation, slow revenue growth and high
costs bites, according to a study by McKinsey & Co.

McKinsey said banks are still years away from developing new
business models that will produce sustainable profits, and need
to slash costs and change employee culture.

The ING Direct deal adds to several deals struck by Barclays
in recent years to add UK retail customers, including purchases
of Standard Life Bank in 2009 and credit card Egg last year.

Barclays said the ING mortgages have a low average
loan-to-value ratio of 50 percent. About 500 of the staff are
based in Reading, with the remaining 250 in Cardiff, and
Barclays said it was too early to say if there will be
redundancies.

Completion is subject to regulatory approval and is expected
to finalise in the second quarter of 2013.

Barclays shares were up 0.3 percent at 222.9 pence by 1030
GMT, firmer than a flat European banking index, but
languishing at around half their book value. ING shares were
down 0.1 percent.